Cambridge International as and a level Economics Ebook

Satisficing
Satisfi cing 
occurs when a fi rm seeks to make a reasonable 
level of profi ts, suffi
cient to satisfy the shareholders but 
also to keep the other stake-holding groups happy, such 
as the workforce and, of course, consumers. Th
e fi rm is 
seen as a coalition of interest groups, each with its own 
objectives, which may change over time. Workers will 
expect pay rises and improvements in working conditions 
which may raise costs. Consumers may expect to see prices 
falling, particularly if there are rival producers. Th
is is 
a long way from the simple profi t-maximising theory as 
fi rms may choose to sacrifi ce some potential short-term 
profi ts to satisfy these expectations.
Satisficing: 
a firm’s objective to make a reasonable level 
of profit.
KEY TERM
Where the fi rm’s shareholders are divorced from control 
of the fi rm, there may be a confl ict of interests. Th
e 
management’s motives may be concerned with growth 
rather than profi t. Th
ey may place a lot of importance 
on comfortable working conditions, job security, status 
and fringe benefi ts, such as company cars, private health 
care and pension rights. Time and money spent on 
these issues can raise costs. If the fi rm has close rivals, 
it may make management more cautious because the 
risk of failure will threaten their job security and career 
advancement prospects.
Satisfi cing
 
can also be a feature of fi rms that have 
enjoyed a high market share over a long period of time. 
Complacency can lead to fi rms losing focus on their cost 
structure or failing to devote resources to either product 
or process innovation. Either situation can lead to a loss 
of profi ts. It could in the extreme lead to a fi rm having to 
exit the market. An example might be a fi rm that produces 
blank VHS tapes and nothing else and which fi nds its core 
product now obsolete.